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theodp writes "Bloomberg reports that the IRS is auditing how Google shifted profits offshore to avoid taxes. According to Bloomberg, Google cuts its tax bill by about $1 billion a year using a technique that allocates profits to a unit managed out of a law firm in Bermuda, where there is no corporate income tax. In 2009, the most recent year for which records are available, this subsidiary collected 4.34 billion euros (about $6.1 billion) in royalties from a Google unit in the Netherlands. A spokesman for Google, whose stated mission is 'to organize the world's information and make it universally accessible and useful,' called the IRS probe 'a routine inquiry' and declined to comment further."

Unless they committed a crime, the penalty is interest, just like with individuals. The interest rate is reasonable (currently 4% for individuals and corporations). On top of that, the IRS pays you interest (again 4%) if you overpay. I know it's popular in some circles to paint government as the ultimate evil in all things, but people will take you more seriously if you start with facts.

Google is neither the first, nor the only, nor the largest company that pulls this exact same tax dodge. I'm not excusing Google, I'm saying that if the IRS is starting to crack down on this the shit is going to hit the fan with a number of larger corporations too.

You're assuming what they are doing is illegal. It's entirely possible, likely even, that everything they are doing is perfectly allowable under the IRS's own rules. Some where on their website they explain the difference between tax evasion and tax avoidance; avoidance is perfectly legal, evasion is not.

Microsoft was doing spectacular tax transfers for a decade through Ireland. Now that other places have joined the race to the bottom in terms of throwing tax loopholes at big companies, Microsoft has "diversified".

Hint: Remember how Ballmer was saying that the Skype purchase wouldn't impact Microsoft because the funds were being repatriated from elsewhere? How do you think those billions in "loose change" got there in the first place? You "park" them elsewhere until you can bring them back onshore at t

GO IRS. Keep making the US even more anti-business so that companies not only shelter their earnings off shore, but they move more operations and maybe even their entire operation off shore. Then you won't have to worry about all of the income, property, and sales taxes the employees pay either, because they won't be here.

We have been waiting too long for the government deficit to completely explode. Continue the good work of accelerating the process.

Did you read the part about it being a part of Google that was ALREADY OFF-SHORED that was the tax shelter? No one's going to move their entire operation away from the worlds largest economy. It's pretty simple: If you want to do business in our economy, you should have to pay the same taxes that all other businesses in our economy pay.

As far as I can tell, they're talking about Euros, which I'm not certain you're aware, would likely have been collected by Google's European operation. I am not an Int

Ah Mr. Koch. Glad to see you've joined the Slashdot community. Are you David or Charles?

Its hardly the Kochs that truly consider such strategies. Look at all the companies that relocate around the US to leverage more favorable taxes and regulations. While less common at the international level keep in mind that such a move might be easier for an *internet* based business like google.

It's not so much that they are anti-US as totally for themselves. They've pretty much raped the US and there are no profits there for them anymore. At least not as far as doing business goes. They'll still sell you stuff, but they have no job for you. It's cheaper to get things done in countries where people are barely surviving and will work for next to nothing. Free trade agreements make it impossible to do anything about this situation. Trade agreements come before the law, including your constitu

Don't a whole bunch of corporations do this? Maybe not to avoid all taxes, but I thought there were tax incentives/breaks for companies to have a global footprint. (Like they pay all the taxes here anyway, with all the breaks they get already.) I, along with my classmates, found it amusing that for our MBA financial class test questions that the corporate tax rate was ALWAYS a set 35%. Then the following class we would do a case study that showed how XYZ corporation actually paid only 7% tax.

Corporate income it too nebulous a concept to remove *all* the loopholes.

For your average wage slave, income it pretty simple. It's your paycheck.

For a corporation, income = gross revenue - expenses.

We can monkey with both revenue and expenses. It's obvious that raw materials are an expense, but is the CEO's limo a necessary expense? If a customer places a big order with a contract that covers many years, when is the corporation required to report that as income? What happens when you report

Things are so much harder when economic reality doesn't match political fantasy.

That statement works both ways... just because in someone's political fantasy of the world corporate tax cuts make all of our lives better, doesn't make it true either. the Libertarian view of economics to me is somewhat detached from economic reality, but it is an economic theory that presupposes conditions which don't actually exist.

So far other than some hand waving with a "then a miracle occurs", I have never been convinced that these tax cuts ever actually generated the claimed outcomes. In fact, from what I've seen, it generates the exact opposite outcomes.

I have never been convinced that these tax cuts ever actually generated the claimed outcomes. In fact, from what I've seen, it generates the exact opposite outcomes.

There's never been any proof that tax cuts this low stimulate the economy. The best I've ever found is CBO scoring on certain tax cuts that say for every dollar cut, you put 60 cents back into the economy. Not exactly a good deal, considering things like food stamps put 1.2 dollars back into the economy.

The real data does seem to support your assertion that the opposite occurs. Data since 1979.

A 'huge' percentage do not pay zero percent. You are undoubtedly regurgitating a figure about how GE paid no taxes a few years ago. It's because they carried over the loss from a previous year. If you lose 100 mil in 2006 and profit 50 mil in 2007, you pay no taxes on the 50 mil because of your prior losses.

If this sounds unfair to you, imagine what would happen if it didn't work this way. Enormous business decisions would revolve around artificial time spans just to keep their profit (and loss) as close to

We used to call that "income averaging", however, this was repealed in 1986 for individuals. Just another case where corporations get preferential treatment over individuals.

They do their corporate taxes on turbotax and they pay 35%..

They may be paying 35% on their taxable income, but that's where the slippery slope is. If I made $1 Million in profits last year, but through creative accounting I can show that I had $ 900,000 in tax-deductible investments, tax shelters, etc, then I'm only going to pay 35% on the $ 100,000, which means, in effect I'm "really" only pay

We used to call that "income averaging", however, this was repealed in 1986 for individuals. Just another case where corporations get preferential treatment over individuals.

You seem to suggest that corporations and people should be treated the same way under tax laws. Maybe this comes from the facile suggestion that 'corporations are people' because of Citizens United, but it has no bearing on actual corporate accounting or taxes.

which means, in effect I'm "really" only paying 3.5% of total revenue.

You aren't supposed to pay 35% of revenue. Taxes are paid on profits. If you want to start taxing gross receipts (and some localities do) then you just drove every industry with high costs and high income out of your area, because nobody is going to p

Maybe this comes from the facile suggestion that 'corporations are people' because of Citizens United, but it has no bearing on actual corporate accounting or taxes.

You seem to be arguing that this is a good thing. It is not, and here's why: Corporations are citizens, at least in the US, and have been for a very long time. You summed up the problem very nicely: "it has no bearing on actual corporate accounting or taxes."

In effect, the US now has a two-tier citizenry - the "human citizens" and the "corporat

This whole argument that "corporations are evil" and "corporations should pay their fair share" is based on the bizarre human tendency to anthropomorphize corporations (and groups of people in general). Saying corporations should pay their fair share of taxes is really no different from saying my wallet should pay it's fair share of taxes based on the money it has in it.

Corporations shouldn't be taxed, period. Money that comes OUT of that corporation through stock dividends and wages and bonuses and per

"What I want to know is how lowering corporate tax helps anyone at all when such a huge percentage of corporations pay 0%"

It would help the small businesses that don't have the resources or know-how to avoid corporation tax. I find all of this rather distasteful, especially in light of the old "do no evil" mantra of Google, but the current system gives big companies an unfair competitive advantage, because they have the resources and know-how to avoid corporation tax.

On twitter every day there are people screaming about the U.S. "high corporate tax rate" and they always forget to mention that NOBODY pays that rate... to many ways around it.

Well then, there'll be no problem with cutting the tax rate than no-one pays anyway.

Of course in the real world, no corporation pays tax. They either pass the increased costs onto their customers or the reduced income onto their employees in lower wages or layoffs. So anyone demanding that we 'tax rich corporations' is really demanding higher prices and/or lower wages and/or less jobs.

Of course in the real world, no corporation pays tax. They either pass the increased costs onto their customers or the reduced income onto their employees in lower wages or layoffs.

I'm a bit unclear on some of the details here. Care to explain how they pass the increased costs onto their customers - I mean, I thought a company already asks whatever price it thinks will maximize income? Which, of course, won't change even if that income is taxed.

What I want to know is how lowering corporate tax helps anyone at all when such a huge percentage of corporations pay 0%.

It doesn't. No more than "tax cuts for the rich" benefits anybody except the rich.

Essentially the corporations and the millionaires say that if only they had to pay less taxes, that would free up loads of money on investment and other things, and the economy would go whoosh and suddenly be reinvigorated. Of course, that hasn't ever happened.

Because corporations are owned by actual people and those people ALREADY pay taxes on that money at the individual level whether through income taxes, capital gains, or dividend taxes. When you receive money from a corporation, no matter what kind (wage, dividend, contracting, capital gain or whatever) --- that money is TAXED when you go to pay your income taxes. It is YOU paying the tax as an individual citizen.

The problem here is that corporations are taxed on their profits. Well, the profits are a

On twitter every day there are people screaming about the U.S. "high corporate tax rate" and they always forget to mention that NOBODY pays that rate... to many ways around it.

That's the trouble. Some people do. The largest companies don't, because there is a trivial and pretty unavoidable way around it: They report their profits in another country with lower taxes. So e.g. Microsoft Ireland will own the copyright for Windows, then license Microsoft America as an authorized distributor, but on terms favorable to the Ireland company so that they're the ones who keep all the profits. Then Microsoft America makes no profit and there is nothing to tax -- you can't tax companies outsi

Very few people pay the individual tax rate either. The system as it is currently setup is simply too complicated. They need to remove all deductions and get some reasonable income band flat tax.

Also, while I'm ranting, why do I need to file taxes each year anyway? The government has all the information. Send me something to check, sign and send back if I agree. If I don't agree then I can go down the path of filing.

Yes many companies do this [cbsnews.com], including one of the most valuable, Exxon-Mobil. There are headquartered out of a small office in Switzerland on paper even though all their key personnel are in Houston, TX.

And some are even carrying this even further with plans for moving their corporate headquarters out of the country to avoid this scrutiny. After all it's easy to point the finger at a company that is only registered in a foreign country on paper but it's harder if their corporate headquarters are physically in that country.

Really? That tripped you up? Well, had you actually been in an MBA level class instead of just taking a test, you'd have learned the difference between a tax rate and effective taxes. Hint: it has to do with tax deductions and tax credits

You don't need cognitive dissonance to understand why a corporation who's tax rate is 35% only pays 7%. You just need to read a little bit and understand how the tax system works at the most basic level.

The way things seem to work these days is one company with controls over one or more politician has decided to use their influence to put some heat on Google.

This "selective justice" has a way of biting people in the ass though -- Google only needs to buy their own politicians to pull the same in return. And Google tends to "fix" things in a way they don't break again. So I think whoever is really behind it will feel some serious heat in a way that it won't come back

I suspect that that isn't quite correct: members of congress tend to be of substantially above-average wealth; but not nearly so much that they would have personal need for the same accounting tricks used to hide the incomes of major multinationals.

Now, of course, the major multinationals who serve as important campaign donors and likely future employers, funders of think-tanks, etc. for them do have need of the accounting tricks used to hide the incomes of major multinationals, so the effect is largely the same.

Not so much the congress-denizens themselves, but the people who contribute to their campaigns and employ their constituents. If you're a senator, and you propose closing a tax loophole, you're likely to get a visit from a lobbyist saying 'my client has a factory in your state that employs 200 people. Without that loophole, we'd have to relocate the jobs to {this week's offshoring nation of choice}'. Senator votes for it, and the next election his opponent runs a campaign about how he cost the state 200 jobs in a single vote. More likely, the senator backs down and tries to find a loophole that none of the companies in his state are using. Unfortunately, when he does, he finds senators from other states experiencing the same pressure and the proposal never makes it out of committee.

Solution: Impose an import tariff equal to the gain from the tax loop hole, and do it in the same piece of legislation.

(1) That doesn't get you out of the 'campaign contributions' problem. You pass the bill, the company in your state that is now paying higher taxes gives money to your opponent, that money causes you and everyone who voted for the bill to lose the next election. Then the next Congress repeals it, probably using (2) as an explanation.

(2) You can't just impose arbitrary arbitrary import tariffs, they violate a whole list of treaties. Especially if the effect of the tariff is to tax the company on the profit it

I think the problem is more structural - the economy is global, but government is only national, for the most part. Companies can easily stay a step ahead of governments by playing them off each other, resulting in the race to the bottom you see today. Notice that you do see more effective international regulation where powerful special interests are concerned - intellectual property for example. But the same thing for environmental and worker protection, no so much.

The question shouldn't be who can or should pay more taxes, it should be how can we reign in a government out of control when it comes to spending.

Really? Let's say for a moment that your small business was selling advertising through clicks on advertisements on the internet. Now, you figure out your taxes and charge your customers that. But somehow, Google keeps undercutting that price point. How do they do it? Oh, right "double Irish" and "dutch sandwich" tax loopholes. You don't make enough money to set up a shell office in Ireland or Netherlands to funnel sales through? Too bad, you'll forever be figuring in more taxes than Goo

This will be par for the course until we get something like FairTax. There's no reason to have this insanely complicated system when we can just have a nationwide sales tax that does basically the same thing while simultaneously eliminating most of the IRS. We can save money on closing down a huge arm of government bureaucracy, save money on making it impossible to dodge taxes, and avoid any complaints about tax disparity for the wealthy.

Do you seriously think that any tax rate such that the cost of paying the tax is higher than the cost of paying the accountant would avoid elaborate tax evasion schemes? Seriously?

These are amoral profit-maximizing entities we are talking about here, they aren't engaging in tax evasion to protest the man, they are doing so to save money. It isn't as though a 15% rate would make them say "Well, golly-shucks, I guess we've finally been asked to pay only our fair share, we'd better do our civic duty!" and s

That has nothing to do with it. By that argument all businesses of any size are already paying their taxes. Except that smaller businesses tend not to have the resources or incentive to invest in an army of accountants and tax attorneys to evade their taxes.

You would have to pay taxes on the food, rent and anything else that the company gave you. Which could mean that they would seize all that back when you couldn't pay your tax bill on it and probably send you to prison for falsifying the tax forms.

Google's probably got nothing to worry about. They've been doing this for a while. So has Microsoft. And Facebook. And probably most other large companies [bloomberg.com]. Most of this falls under something called transfer pricing [wikipedia.org]. Which is a global problem [irsfraud.net] that you will find anywhere from China to Britain to Argentina.

It's not quite right for this article to make it sound like a solely Google problem. It's far far larger than that. In the end, Google's got enough of the highest paid lawyers and accountants that this audit should turn up just about nothing.

Hmmm, maybe I'll just transfer all my profits to Bermuda... oh, right, I'm poor. We pay taxes. Corporations and people rich enough to afford shifty accountants don't. And, really, what motivation do my representatives have to change this situation? Their soft money doesn't come from me and my fellow citizens are too stupid, too easily misled and too illiterate to vote someone who would change this into office.

The corporate MSM has always obscured this problem (and it's variants) and will continue to obscure this problem because they're into ass deep themselves. I've never heard a TV news show bemoan the fact that many corporations affectively have a negative state income tax rate and I suspect I never will (but it's well document in books like "JobsScam" and other places).

They don't want people thinking that the people have OWS have a point now, do they?

This, unfortunately, is a very common way for corporations to avoid taxes. The rules to decide which country "earned" a particular chunk of income are inherently complicated (with little way to simplify them), as there are plenty of legitimate reasons for part of a company to owe a foreign subsidiary money. It's a constant cat-and-mouse game between corporations and the IRS chasing this money around.

It's a complicated problem with no good answers. (Though you would never know it to listen to people on either end of the political spectrum... on one end you have people saying we should "eliminate loopholes", betraying their ignorance of why the problem exists to begin with. On the other end you have people that argue that corporations should pay no income tax since they spend so much effort complying (or fighting) with tax laws, but offer no way to make up that lost revenue, or volunteer cuts.)

there is a good solution. Don't tax corporate incomes. If you can't really do it anyway, then you are just going to be constantly frustrated. Instead, change the taxes to allow companies to do what's right.

Completely waiving tax by corporations isn't a solution either. How is that, in any way, fair to companies that have not incorporated in a way that would allow them to avoid tax? (i.e. your average small business.) Due their corporate "personhood", a corporation involves a certain fixed amount of perfectly-justified administrative and legal overhead that is untenable for many small businesses.

We do collect a substantial amount of corporate income tax, even if that is far less than the official rate.

It is a simple problem to fix. Cheating on taxes is akin to stealing from your neighbors. Give the executives one week in prison for every million dollars not paid. Watch the problem disappear over night.

Of course, the robber barons are above the laws and would never be charged, even if they were lax enough to allow the bill to pass. But that's a problem with the system, not some inherent difficulty in levying taxes.

The last time the US Congress did that, companies just re-purchased their own stock with the money they brought in. In other words, the only people who benefited from that stimulus were the top executives. The rest of us saw a 3 Dollar uptick in the stock price, and thought ourselves lucky we could get a dinner at a nice place through selling the stock.

Google is a publicly traded company. They have to be audited every quarter simply for that reason. Every publicly traded company has to be independently audited every quarter. I doubt IRS will find anything Google can't.

Every publicly traded company has to be independently audited every quarter. I doubt IRS will find anything Google can't.

The "independent" auditor is hired by the company to perform the audit every year. This company makes significant amounts of money performing audits, and attracting customer loyalty. How much incentive do you think they have to dig deep, and find anything really wrong?

Anyone who knows anything about audits knows the audit is only as good as the auditor. Think the IRS might have some de

Hiring auditors to overlook things (even in a wink-wink nodge-nodge manner) would constitute any number of felonies. Any publicly traded company is so awash in money that it would find it fairly difficult to make felonies more profitable than simply sticking to its core business. Everyone is corruptible, of course, but corruption on large scale simply doesn't pay enough to bother with it.

The question comes down to interpretation of tax law. Did Google's accountants correctly interpret tax law so as to allow them to avoid taxes in all of these cases? My bet would be that after a 5-10 year investigation the IRS will conclude that Google made several "innocent" mistakes and owes the IRS some significant sum and that they will agree to a settlement with Google that covers the cost of the workers time.

The offshoring of profits needs to end. Google is doing it because it saves on their tax bill. Microsoft does it too, and most banks. I remember seeing a program on TV that interviewed a man who cut the lawn of banks in the Grand Cayman Islands. There were over 350 (different corporate) banks on the island, but it was difficult for the locals to find banking services because there was only a local credit union serving the island. Zero corporate taxes means profits aren't taxed. I remember hearing abou

Regardless of whether this is just normal corporate practice how does this sit with the 'Do No Evil' motto?

Personally I'd avoid paying any tax I could, but then I've not portrayed myself as anything other than a normal individual. Google, through their motto, have set themselves a higher bar. To me this shows that the pressures of being a public company have made the halo slip a little,

Under W, large amount of tax breaks were put in place. However, they actually encouraged offshoring. At the same time, other tax changes were put in place that made it easy for companies like Google, MS, Apple, etc to shift profits offshore. This needs to stop.

I like Google. Really like them, but this is good.While the off shore practice they utilize isn't uncommon for large corporation, it is wrong.Double Irish and Dutch Sandwich, and other loopholes need to be closed. If it means putting a company I like in the hot seat, so be it.

If you believe that every system has flaws, then you might be able to see when it may fail. For example, the income tax system has always been ham handed. Those who understood it well enough could always slip between the regulations to avoid some or all of it. In the early days, about 90 years ago, most people ignored them. In the 1940s, they passed payroll withholding and started collecting from those who were employed by others.

When most of the revenues were coming from a large "middle class" the system worked because it was easier to pay the government than to pay a tax attorney to find the cracks. People who were really rich could still afford to pay tax attorneys to minimize or limit their taxes, but it was a relatively small percentage of federal income tax revenues.

But as wealth began to concentrate, an industry of bright financial and legal professionals flourished, allowing more income to be shielded from the IRS. The rich, who got richer, weighed the cost of the tax verses the cost of testing the tax avoidance in tax court and decided the best return was "playing in the gray." The IRS has no choice but to go to tax court when someone challenges them. They do not have enough people to fight every rich person or company. Often, the well-paid lawyers of the taxpayers are better versed on the law than the civil servant IRS lawyers. As the rich get richer, they influence tax laws to gain a greater advantage. Eventually you have a society of people who are either too poor to pay much tax or a few too rich to need to pay tax. That is when the tax system fails. Frankly, no tax system can succeed when the money is too closely held by a few.

Skip 12 has shown not to work.3 I see what you are going for, but when a company is breaking even, it would kill them.4 because 3 is impractical, if not destructive, 4 is invalid5 I would argue for making that tariff only on good imported from countries that don't meet are federal worker guidelines.

"Otherwise US will spend it on wall street instead of their own taxpayers anyway. "What does that even mean? are you referring to the loan the US gave out to prevent the economy form getting worse? they one that's been paid back?

"taxes I expect something in return. "Are you telling me you get nothing? no roads, law enforcement, fire dept, military.. nothing? Wow that's bad, but her in the US we have a pretty good infrastructure, and many other benefits from being taxed.